Pub operators welcomed the chancellor’s decision to freeze alcohol duty on draught beer and cider but warned that a tax rise on other alcoholic drinks could hurt demand as the sector grapples with an economic slowdown.
Chancellor Jeremy Hunt announced plans in his first Budget to “significantly increase the generosity” of tax relief on draught beer and cider from the start of August as part of a “new Brexit pubs guarantee”, arguing the move would not have been possible if Britain still adhered to the duty system set by the EU.
Draught relief will increase from 5 per cent to 9.2 per cent, largely offsetting a planned inflation-linked rise in alcohol duty of at least 10.1 per cent in August. “British ale is warm but the duty on a pint is frozen,” Hunt told MPs. The duty on draught products in pubs will be up to 11p lower than the duty in supermarkets, he added.
The 10.1 per cent rise in duty will hit demand for other beverages, including bottled beer, wines and spirits, that do not benefit from tax relief, warned industry groups. A long-awaited shake-up of the duty system also planned for August, which will tax drinks in relation to their alcohol content, will mean wine will be hit by an even bigger tax increase of about 20 per cent, or 44p a bottle, according to the Wine and Spirit Trade Association.
Emma McClarkin, chief executive of the British Beer and Pub Association, said the increased tax relief on draught beer was “positive” but she warned the industry will face “an overall tax hike not a reduction come August”. Draught beer accounts for less than half of all drinks sold in pubs.
“Duty on non-draught beer will rise and the measures introduced today won’t rebalance the catastrophic impact [of] soaring inflation and unfair energy contracts on both pubs and the breweries that supply them,” McClarkin added.
Kate Nicholls, UKHospitality chief executive, warned that help for pubs from the draught relief was “dependent on suppliers doing the right thing and passing that cut through in full”.
“Will a brewer pass that on to a publican? I don’t know,” she said. Following the agreement of the Windsor framework, the draught relief measures will also apply to Northern Ireland pubs, Hunt confirmed.
“Where we save in one area we’re getting hit in another area,” said Oliver Robinson, managing director of Robinsons Brewery & Pubs, who said the rise in corporation tax to 25 per cent from April would outweigh the benefits of draught relief.
The decision to extend draught relief alongside the changes to the taxation system will cost the government £405mn in the next financial year, falling to about £80mn a year thereafter, compared with projected tax revenues.
A combination of the higher alcohol duty and the wider shake-up means taxes on port and sherry will rise by 44 per cent while the 20 per cent tax increase on wine would be its biggest in nearly 50 years, according to the WSTA.
Mark Kent, chief executive of the Scotch Whisky Association, said a “historic blow” had been dealt to the industry by the lack of a wider alcohol duty freeze, adding that 75 per cent of the average priced bottle of scotch now went to the government in tax.
“The chancellor has chosen to further increase the competitive disadvantage faced by the industry in the UK by giving additional tax breaks which are not available to the vast majority of distillers,” he added.
Hunt also announced an increase in excise duty on tobacco products of 12.1 per cent.